good article, but strangely it doesn't mention the Legislative elections coming up a few weeks after the Presidential voting, which will be absolutely crucial. Socialists should retake the majority there which would be great for Hollande if he's elected. But if Sarkozy somehows pulls through this could mean yet another era of "cohabitation", with Sarko's hands pretty much tied on reforming.

All said here is a joke.
SArkozy is everything but gaullist he is liberal and atlantist.
France was at the height of the world in 1900 because it was a free and equal country and you can feel it in the air.
That is why the most famous artists that sells now for millions came in paris and not london.
France has failed in the last five years because of dramatic incompetence of its leader:no idea,no ideology and autocratic attitude
to hide it destroyed the country.
The ousting of Lauvergeon at areva and the dismantling of the nuclear industry more for personal reasons and political feuds
than anything else is the best example.
France is no germany it needs a strong state with big industries
to build big projects because FRance is built like that.
Very good knowledge from schools is morphed into big projects like
concorde,the France,the TGV and the nuclear industry is how it succeeds.
Trying to build it into something that do not fits its strength
is just plainly foolish.
UK is in such a miserable state that it is not in a good position to give lessons.The murdoch scandal with ties between "newpapers",
politicians and the police is the best example of how scleroses
this society is.
Just shut down tax heavens and the city and the UK is dead.It has massively benefited from the economy Financialization in the last 30
years that nearly destroyed the world in 2009,but behind this the country is so weak because it is still ruled by a king,an elite
that all it can do is cut the state and returning more and more
in the middle age.

Let us start in the eighteenth century, something of an improvement on your (sour) grape-shot approach.

The visit of Adam Smith to France from 1764 to 1766 is comparable in intellectual consequence only with that of Montesquieu in the other direction. Travelling as tutor to the young Duke of Buccleuch, Smith visited Paris, Toulouse and much of the south, met Voltaire several times, and also carried out research on French taxation and trade, partly to diagnose the weaknesses that had caused France’s defeat in the Seven Years War (1756-1763). These researches and exchanges – ‘the most exciting passage in Smith’s intellectual development’ – helped to shape his Inquiry into the Nature and Causes of the Wealth of Nations (1776),

Adam Smith was considered by many to be something of a Physiocrat. These economic theorists believed that government policy should not interfere with the operation of natural economic laws and that land is the source of all wealth. Adam Smith went along with the first part, but rejected the second. He was also sceptical of ‘men of system’. For him, the individual instinct for self-betterment would serve the general good ‘in the natural course of things’, as if by ‘an invisible hand’. ‘It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.’ So economic freedom was not only right, it was also efficient.

His ideas were taken up by early leaders of the French revolution. Yet, as the intellectual historian Claude Nicolet noted, Smith’s ideas and those of the Scottish Enlightenment generally - ‘the birth-certificate’ of modernity - have not taken root in French political culture. Smith’s vision was of a constantly changing world without certainty or superior authority. This view of things offended the more systematic French mind-set.

The whole French way of doing things was ‘top down’. Traditions of economic control (commonly ascribed to Louis XIV’s minister Colbert), Catholic paternalism, republican patriotism, and later the Bonapartist emphasis on state-directed modernisation all bear witness to this mind-set.

Smith’s vision had also aroused fears of social upheaval during the long aftermath of the revolution. Hence French distaste for what a recent prime minister, Edouard Balladur, described as the ‘law of the jungle’. Above all, it was the French revolution that forsook the modern emphasis on individual liberty in favour of an idealised picture of the citizenship of the ancient world. Republicans condemned Britain (‘Carthage’) as a selfish commercial society, and praised France (‘Rome’) for upholding nobler values. Two centuries later, this arguably still marks France off from the Anglophone world.

yet it was already a Brit that ruined France
ever heard of John Law?
If France was such a bad managed economy, since Brits were writng us off centuries ago, how comes that we are still a vivid country that annoys them? and still the 5th country by GDP ranking
p'tain, must be sumthin with these idiot French

‘yet it was already a Brit that ruined France
ever heard of John Law?’ [Marie-Claude]

John Law, a Scotsman, fled England in 1701. The Act of Union was legislated in 1707, so JL was not British. He was a professional gambler and economic visionary, whom the French were gullible enough to believe, plus ça change…

When Louis XIV passed away in 1715, he left 600 million ‘livres’ in short term debts, two billion in long term debts, and a treasury which was bare. John Law’s suggestion was more subtle than the usual Bourbon expedient of locking up creditors and refusing to pay which, though effective, made problematic the business of raising loans in the future.

Instead, in 1716, John Law founded a bank – la Banque Générale – able to emit paper currency, just like the Bank of England. In 1717, he founded the ‘Compagnie d’Occident’, whose mouth-watering prospects would induce the creditors of the French Crown to exchange their bonds for shares, thus privatising the public debt and stimulating the economy.

The Brits were daft enough to copy John Law and founded the South Sea Company. So, in the early 1720 both companies were competing for the same international speculative capital and the canny Dutch began to sell. Law struggled to keep the share-price rising by publishing bogus predictions. The bubble burst in the summer, simultaneously with the South Sea Company.

The good news is was that both governments had considerably reduced their debt at the expense of gullible investors – ‘Anyone care to buy a Eurobond, by the way? – and John Law’s family subsequently became members of the French nobility.

In each country the financial establishment went back to business. But there was a crucial difference. In London, the Bank of England emerged strengthened, as it took over and salvaged what it could of the discredited (!) South Sea Company. This was the city’s first ‘Big Bang’ and regulation was introduced to make investment safer. As a consequence, British finance became more honest as well as more efficient than that of any other country in Europe.

In Paris, the idea of a state bank was discredited for generations, paper money (scareyyy!!) was rejected, and financial modernisation halted. It seemed obvious that an absolutist monarch would always cheat. Silver and gold became perennially short as people hoarded coins. Quite literally, France became a country with hidden treasure about the house and in the garden. That crash of 1720 ruined the French credit market for at least a century. The Crown resumed the crude methods of the past, repudiating hundreds of millions of ‘livres’ of debts. The ‘financiers’ – an amalgam of courtiers-businessmen-civil-servants – bought their way into office. They became rich. France’s military effort was handicapped. As was economic growth. And the monarchy was undermined. France ruined France, Marie-Claude.

I would be grateful for more information about 'niches fiscales' [tax loopholes] of the more imaginative kind. I'm thinking in particular about investment vehicles which involve investing in the 'départements et territoires d'outre-mer' (the DOM-TOMs).
Is my memory failing or did the rich physically remove their cash, droves of them, aiming, hell-for-leather, for Luxembourg and Geneva, at the time of Mitterand's accession in 1980?

About tax loopholes, some say it costs 172 billion € a year to France. These consist essentially in legal devices, which multiplied under the actual "Président", meant to escape from fiscality. For instance, having a housemaid allows you to subtract a part of her wages from your fiscal declaration. It goes the same if you add solar panels to your roof, which is a totally unfiscalised operation... These examples are obviously not exhaustive for some loopholes concern directly businesses and better information may be obtained on governmental websites (if you read French), or by someone who enjoys these tax loopholes for there are many different ones. Add to these the "bouclier fiscal" (fiscal shield) which allows you not to declare income above a certain amount costing about 2.7 billions a year to France, the lowerage of ISF (imposition on fortunate people) and fiscal exile in Luxembourg, Switzerland, or even UK and you will understand why France gets a rising deficit and debt...

If you make a sum of public+private debt, how is France compared with, say, UK ?
This is interesting to know, because it seems that in the last years, private debt tends to transform into public one in some countries.

I don't think you're reading this one right. Sarkozy's current rating in the polls is beyond abysmal (something like 20% of support). He was *not* very popular when he was interior minister, quite the opposite: he gained a reputation as a possibly racist authoritarian (bad).

He's also made some terrifying U-turns on many aspects of his policy, including ones about putting people back to work, reforming the system, making Paris more like London and generally not trying to turn every single situation he runs into into a personal success that could never have happened without His Glorious Intervention (in short, he's an opportunistic weasel and people have realised it).

Finally, most people I've spoken to aren't really ecstatic about the prospect of voting for Hollande. As a friend put it: "once more, I'm going to show up at the voting booth wondering for which clown to vote. How is it that we ALWAYS have such a rubbish choice of candidates?"

Your thing about "hobnobbing with the super-rich" is true, but the Socialists are absolutely not considered any different in that respect.

On top of what others have said here, I'll add this: I have found that at every level of discourse in France, it is assumed that economics is a zero-sum science. If there are too many unemployed young people, we need to make older workers retire to make room for them. If there are too many poor people, we need to take from those who are not poor to redistribute. If the Germans/Brits/Americans/Chinese are stealing our jobs and exports, we need protectionism to keep those jobs and exports at home.

I have found this absolutely everywhere I have ever looked in France, whether in the news or when casually talking to any person of whatever social class, education level etc. I have not yet met a Frenchman who grasps that the economy is a dynamic process that mostly works by creating wealth, rather than by sharing an existing finite pot of gold.

My hunch is that this dates back to Colbert, and it is also my hunch that every single candidate firmly believes in this today.

I couldn't agree with you more.
People seem to sincerely think that they will be better off if top executives make less. Most are also convinced that if you raised the minimum wage by 20%, then millions would just magically be richer and that is that, no other consequences whatsoever.
France was home to Bastiat and Say and Walras, but the people and politicians are still very firmly in a pre-Adam Smith world.

Funny that you should say that; the zero-sum discourse has been at the heart of all arguments for pension reform, enforced austerity and all those conservative economic snake oil potions which TE wants us to swallow by the gallon.

The left is much better attuned to the dynamic nature of economics. It merely wants them to have a measure of steering.

France does have problems to solve, but the image that is given here is profoundly misleading, if only because it is not put in perspective. By and large, France's fundamentals are healthier than the UK's for instance, and the French economy is less subject to Anglo-Saxon style boom and bust cycles. Unlike the UK it still has a manufacturing base and a diversified economy. Unlike Germany it is politically savvy and capable of throwing its weight around without p... off everybody for no gain at all. As for its relation to free markets, probably it could have done better during the good times if it had been more free-market oriented (and had satisfied those Anglo rating agencies who have done such a good job in helping to ruin the world economy) but it would sure as hell be doing worse now.

Also, from my francophone but non-French perspective, I find in interesting that TE can see through the politicians' political theater but fails to see that the same goes for the electorate. The French like to play revolutionary, but in the end they always go for the safe pair of hands, which in most cases is centre-right. There has only been one leftist president since the Fifth Republic's creation for instance, and he was elected when he passed himself off as a rural centre-right "notable" on his election posters ("La force tranquille", with "la campagne" and a belfry on the background...) The French want to hear all the "républicain" blabla during the campaign, and having been satisfied with the required theatrics, they consistentlty choose the reasonable solution. Even the 35 h has turned out to be a reasonable policy, as it has effectively blocked salaries for years now...

It is a bit puzzling to hear French people patting themselves on the back about their 'diversified' economy, so much so that it is almost a cliché now.

I refer you to the IMF 2010 data on PPP GDP by sector (usefully copie on Wikipedia). Among the top 35 economies, guess which is the one where industry represents the smallest rate and services the greatest? It's France. And with quite a large margin.
The fact that France has some famous car brands and the UK has some famous banks is more 'advertisement' than representative of any underlying economic truth.

I assume that you believe what you say. Your analysis is a good one for anyone who still believes that the free market economy is the better solution for the world to run properly. I won't stand alone as an enemy of financial power and wealth but I think that you should keep in mind that most of French people can't bear that finance gets better consideration and money than work. The problem of French people lies here. This is the main reason why French politicians don't talk about austerity in favor of the financial wealth. We Franch people (because I am one of those stinky frogs which never washes in your clichés) made a revolution nearly 250 years ago to kick out rich families raising their fortunes on people labour. It is quite astonishing that during this long time all the ruling economists did not understand this. Worst, they encouraged our own economists to think the way they do. The wealth of financial power depends on people working for bread and shelter whether you like or not. If this very people refuses to work for finance, what becomes of it?

I am a stinky frog too! Remember that this article quotes French businessmen who are worried about the lack of pragmatism among the electorate. They are not in finance.

I respect your views on finance and find them pertinent. But before having formed your opinion on finance, have you understood what it does completely?

Deregulation is not simply a deed of the devil, it vastly enlarges the market. This is what has allowed the PIIGS and France to borrow debt very cheaply for all this time. Cut France out of financial markets, and the French government has only its own people to count on for the purchase of its debt. That means much less debt emission, or huge borrowing costs. Then we can see goodbye to our super welfare state.

What I love about this article is that we French tend to forget that a super welfare state requires a lot of wealth creation. We love equality and welfare but hate those who seek enrichment. Can we not see that the former requires the latter?

Quote: "we French tend to forget that a super welfare state requires a lot of wealth creation" Don't you love it when someone spells out exactly what you've been thinking for years?

Actually, I am not sure if French people so much "forget" as simply "don't know" that wealth needs to be created before being redistributed. We may grossly overestimate our countrymen's understanding of the most basic arithmetic and economic concepts right there.

before that Giscard sold out our Bank of France prerogatives to private banks there wasn't such a big deal of Debt, and french people could buy debt bonds through tresor bonds, now all is made above our heads, towmorrow we'll learn that our country belongs to anonym oil Bigame sultans...

like once the Brits owned our country through perfid marriages, it took us a century to get rid of them !

It's time to recover our sovereignity, and make a new crusade against these anonym shareholders

That's $1100 a month of French debt to buy per household. Are you ready to lend that much every month? Do you think all French citizens can be relied on to do so? Or would you have them do this by force?

By the way, these figures would have to be even higher: for France's borrowing costs to stay low, there would have to be excess demand for its bonds. That will not happen in a domestic market.

Before Giscard, France was on 6% average growth. Ca fait toute la difference.

and what do you suggest? carrying on this way? paying for the internationale of the banksters?
Either ways, we'll have to tighten our belts, find me a politician that is ready to cut into the administrations, especially in regions, he then will be singled and isolated by his peers, none cuts the branch on which he sits, all the politicians come from the administrations.
and sure, a Greece happening will come, Brussels will have to set one of its technocrats at the head of our government for implementing the big cuts. But, before, let our banks take the big hit, they who made delirant leverages, we shouldn't pay for them. Expect that that will not happen in a quiet atmosphere. It's our way of fonctionning, we aren't German, nor Brits... but sorryly French, "You can't empech the French to be French" de Gaulle
It's not what I hope, I would rather want that the whole EU spanish castel crumble with the euro, bankrupted for bankrupted, then rather being free again with recovering our sovereignity,
"We love equality and welfare but hate those who seek enrichment. Can we not see that the former requires the latter?"
yet our "rich" evade their assets out of France, that's why they aren't so liked. Did you know that France ranks the first in Europe by its millionnaires, and the third in the world?
So, it seems that they are the rich Greeks, that don't care that their country is in recession, since they get their revenue from outside for enjoying a life in paradize !
It doesn't seems that these people invest in the country they live in. It's where a Melenchon is right, but will he be able to make these persons pay their "dime" ?

oh I forgot to talk of the "internationale of the Rentiers", that rely on the pensions funds, that play casino with our deb, and those that press on our enterprises for that they make more benefits, not for investing in their labor tool, but to allow that some old farts somwhere can play casino in the Antilles islands

Your column is a breath of fresh air clearing the traditional rubbish that pollutes French media keen on spreading nonsense such as "French politicians are hopeless" (not all of them are, as you point out).

This article nicely and roundly puts this putrid excuse in its place. The sole responsibility for France's hilariously yet tragically poor economic and social performance since the mid-1970s lands squarely on the voters' doorstep. Contrary to what even presumably (and generally) reputable media sources such as Slate.fr like to go on about, French voters have had multiple opportunities to choose responsible, straight-talking politicians over avowed demagogues since the 1980s, and have systematically plumped for the latter.

Of course, politicians could and should refuse to give in to facility (and futility), and start beating the reform/competitiveness drum instead, but why risk losing an election when the other guy will systematically fill in the demagoguery hole they would leave anyway?

Thank you, TE, for reminding voters of their responsibilities. As a Frenchman, I wish you would publish such articles in French and distribute them in cafés, universities, public transport stations, etc.

What is the real issue about taxing at 75% the income above one million euros per year? Can this really discourage entrepreneurs from running their business in France? I can't believe they can be so greedy. And how many people actually reach such an income level?

Who needs one million euro per year anyway? In France, you can live a pretty comfortable life with only 100.000 euros per year, enjoying the good food, the inexpensive and high quality medical system, and the almost free educational system for your children.

100.000 a year sounds great when your current income is 15.000. But what about when you've worked very hard to make a company grow and you've greatly contributed to the economy by creating jobs? Shouldn't you be rewarded for that? What if your dream was to build a magnificent house, or buy a beautiful flat in central Paris?

Take someone who earns 100.000 a year with a big job in a very big company. This person is sustaining a business, making sure verything is run okay, not taking many risks, not creating much, just preserving value.
Then that person is offered a risky job to launch a new company, a new concept that could create hundreds of jobs if it is successful. Will that person take the risk if success will not increase his/her pay, but failure will certainly diminish it?

Well said. And you could apply your example not just to entrepreneurship but also to salaried work. Would a talented professional work very hard to create value for the company, in the hope of getting a promotion (and the logical bump in compensation), knowing that 75% of *some* of that potential extra income would be taxed? Tough choice.

I think ensuring that the current tax code is simplified, sanitised and made much more difficult to circumvent is a far higher priority than punishing people for working hard and being good at their jobs.

France needs more rich people (who pay their fair, non-punitive taxes, of course), not less. Likewise, we need to lift more people out of poverty, and creating jobs for them is the only realistic way to achieve that.

I can understand that high social charges can be a real problem, but I'm still not convinced that the 75% taxes for the income above 1 million euros per year will be so bad.

You write "success will not increase his/her pay". That is quite inaccurate.

Let's consider some Madame Martin, having a big job, earning 100.000 euros a year. We agree that this enables her a quite decent standard of living (I know by experience that it is possible to live in Paris with less than one fourth of that and still be happy despite having a small apartment, but I reckon I don't have a family to raise).

Let's assume that Madame Martin is offered a risky job that would multiply her income by 10. That would reach the million euros per year. With only 1 million euros per year, Madame Martin will still escape the 75% tax level. If by chance she manages to earn an extra million (that would represent a 20-fold increase in raw income compared to her initial situation), the 75% tax would apply and she would in fact only keep 250.000 euros from this extra million.

That is still more than the double of her initial raw income (and this is what remains of the extra million: the other million will be taxed at a "normal" rate: most probably less than 50% overall).

Don't you consider this a good reward?

Do you seriously think that Madame Martin will not take the risk just because the increase in income will be too low compared to a situation without the 75% tax?

Now let's have a look at the income repartition for 2010 in France:
tinyurl dot com: income2010-pdf

The average yearly income for the 10% richer people in France is slightly above 100.000 euros. So in her initial situation, Madame Martin is already among the 10% richer people in France.

And if we consider only the 1% richer, the average is slightly above 360.000 euros per year: even with only a 10 fold increase of her income (which is not enough to reach the threshold for the 75% tax), Madame Martin will be among the 1% richer people in France.

Do you seriously believe that a significant part of the employment in France is created thanks to people among the 1% richer of the country (and especially by those that are greedy enough to consider that a 75% tax on extra income will be a good reason for not taking extra risks)?

Take also into account the fact that public employment is important in France: all these jobs do not directly depend on the initiative of Madame Martin-like people (not to mention the rare people that are already millionaire). On the contrary, these jobs depend on taxes. Better tax a double millionaire at 75% on his second million and create 10 jobs in the public sector than leave the taxes at 50% and hope this will encourage a millionaire to create more jobs than he/she would create with the 75% tax.

Being afraid of Hollande's 75% tax seems quite irrational.

Given the above-mentioned income distribution, even with the 100% tax that Mélenchon wants to apply to the income above 360.000 euros per year, 99% of the population of France may still hope an increase in their pay when they take a risky job.

It's more than just that. A market economy is no simple deal. A tax of 75% on anything above 1M euro's will apparently leave the lower and middle class untouched, but that is not the case. Because beyond the small entrepreneur and your average salaried worker, you also need to rely on big bussines. Those are the big exporters, the big producers, and the revenue they generate creates more opportunities for the aforementioned small entrepreneurs and salaried workers.
Those big industry companies are already leaving France. Just take France's automobile trademark, Renault. A while a go they bought the Dacia factory here in Romania, 2007 I think, and now they are considering opening a new factory, in *drum roll* Morocco. This is very representative of how big government and big labour influence big bussines. It doesn't redistribute wealth, it drives it off. A 75% tax on income over 1M will only drive up this process even further.

I agree with your theoretical example. But in practice, things are not equal: The investor will rarely (never) have the choice between two countries with exactly the same conditions except for the income taxes.

My intuition is that in the case of big companies and France, the effect of the income tax is negligible compared to the effect of the cost of labour: The number of employees makes the labour cost a dominant factor for the success of the investment. If the production can be transferred abroad, an investor will prefer to invest in a country with a low labour cost, even if its personal income might be taxed at 75% above 1M. So France might as well apply such an income tax and do something useful with the money gained through the taxation of the bosses of big companies that cannot transfer the production.

Now do the investors really earn more than 1M a year?

In the case of big companies, investors are usually some diffuse community of shareholders who individually do not earn millions of euros. Am I right?

If so, a tax on the income above 1M does not really concern the investors: What is important is that the company will make profits.

Puh-leese. I have nothing against the wealthy as a species and do not advocate sending them to the salt mines, but the old ditty about their risk-taking is nothing short of obscene. Those guys can end up with a net worth of MINUS one million and still splurge on the Riviera. They run no personal risk, period. The only people who risk ending up on the street are their employees.

You're forgetting that Madame Martin needs also to consider the possibility of that risky endeavour not working, and her pay being reduced.

Madame Martin, if she is smart, will think of her expected income. If the successful outcome brings her smaller gains, then the expected value will more likely be BELOW her present salary. She will decline the risky job.

If you want to get technical, any economist will tell you that taxes distort marginal incentives and produce a deadweight loss. In English that means less innovation, less growth, and eventually no super welfare state.

Whether you think the trade-off is worth it depends on your political beliefs.

interesting comment. What you're describing is a case of what economists call moral hazard: guys at the top can take all the crazy decisions, they don't care, the ones below will pay if things go bad.

That happens in investment banking, and needs to be solved. But if it were also the case in the industrial sector, we'd be seeing big companies going bust because of excessive risk-taking. Whether it makes sense to you or not, evidence shows that big businessmen do bear risk.

We're seeing big companies going bust, whether because of excessive risk-taking or plain old mismanagement (or bad luck) would be for the shareholders to decide if they had the grey cells.

But the _personal_ risk is zilch, especially in France, where boardrooms are filled to the brim with corporate failures who top up their golden parachutes with some cozy jetons de présence. In extreme cases they end up in jail (had to be read dumb), but in the streets? never ever.

Ever wondered how many corporate disasters Alain Minc, the oh so brilliant economic advisor who keeps Sarkozy in thrall with his wisdom and wit, and had a hand in most shady deals of the Sarkozye, has under his belt? I don't see him on the dole queue. And the exceptional dumbness of Lagardere's heir is known to all, he drives his empire and employees to ruin but is in no personal risk. (at least Marcel Dassault had the common sense to park his own less than bright son out of the way).

I'm not forgetting that Madame Martin has to consider the possibility of a failure: I say that the 75% tax on income above 1M is in most cases not relevant for people like her (earning 100.000 euros a year and having the option of taking a more risky job).

Madame Martin, if she is rational, should have a different attitude only if the income in case of success goes above one million. We are talking about a more-than-10-fold increase in her raw income compared to her initial situation. My guess is that people having an opportunity for such an increase in their pay are pretty rare.

For the rare situations in which the income in case of success will become higher than 1M a year, I agree that the 75% tax will lower the expected income compared to a situation with only a 50% tax.
My political beliefs make me think that the effects of the lower incentive will be more than compensated by what the state can do with the money obtained from the 75% tax.

I'm not an economist. I don't know.
But I think the skilled entrepreneurs, on average, will still create a portion of the jobs they would create in the absence of the 75% tax.

What's wrong with perfusion? The state could use the money to create jobs in non-profitable-yet-useful-for-the-community areas, where no entrepreneur would venture. This in turn may improve the conditions in which the workers grow and live (better health, education, etc.), and so provides efficient manpower to fill the jobs created by the skilled entrepreneurs.

There is potential complementarity between the two "powers" (entrepreneurs and state).

Your view of State action is very rosy indeed. Do you think the 300m€ raised by this tax (at the very most) can change the life of many workers? "L'Etat" is incredibly dispendious on matters of Education, health, and let's not forget the 'politique de la Ville' of course. Are the results so pristine? Sure, it might be worse elsewhere, but the return on spending seems quite weak overall...
I guess we're delving too much into ideology to have any of us change his mind, but where you see a benevolent state trying to improve the conditions of 'workers', I see mostly clientelism, vote-buying and political maneuvering (Hollande's 60,000 new teachers illustrate all those points). France can muddle through, and has for quite a while, but I've never seen any country lifted out of poverty thanks to 'conditions-improving' spending. Give individual more money to spend and invest as they see fit, and you'll see real growth.

Yes, it's a matter of ideology.
I may well be excessively optimistic about the ability of the state to make good use of the money it gets from taxes. But at the same time, I think many of the "economically liberals" are excessively optimistic about the ability of the high-income people to do something useful when they get more money. Some of them do great things, others on the contrary make big mistakes, and it is probably not well correlated with the amount of money they gain (I recall we're talking about a portion of the 1% richer people in France).

You say: "Give individuals more money to spend and invest as they see fit, and you'll see real growth."

I want to put emphasis on a point in the discussion that seems to have been neglected.
The money that is invested in the economy does probably much more consist in money from scattered shareholders than in money from very rich individuals. The very high incomes we are talking about play almost only a role of incentive for a few very rich individuals when they are about to take risky management decisions: as said just above, this may result in great achievements, but also in economic failures. And it's not a matter of personnal money available for investment: they mostly invest the money of others, not concerned by the 75% tax. I don't know what the average effect of these risk-incentives are, but given the small number of people involved in these income-driven risky decisions, the effects are likely highly inpredictable.
In these conditions, raising the tax on the income above 1M a year from something like 50% to 75% will diminish the risky decisions: if we are optimistic about the ability of the rich risk-takers to make a good job, the average expected effect will decrease, but its variance will also decrease: less risks implies less variability in the results. If we are pessimistic about said abilities, we may even think that the 75% tax is a good thing for avoiding these too risky behaviours.

I believe that the role of individual initiative in the creation of jobs is much more important at the level of the numerous low-income entrepreneurs that try to start and develop small and medium businesses. These people are not concerned by the rate of the tax on the income above 1M a year.
These small and medium businesses are those that really can play a role in lifting a country out of poverty, not a few milionaires. And I insist that this can be better done in synergy with state investments, because the availability of efficient workers depends on non-profitable investments.

About the new teachers that Hollande is planning to hire: these are new compared to 2012, but recall that this follows 5 years during which the number of teachers has decreased. I have been a teacher during one year, in 2007-2008, that is before the effects of Sarkozy's policies could be fully observed. And I assure you that my work was much more efficient during the few hours in which the calsses were split in half than during the hours where I had to manage full classes. The difference in efficiency is probably lower with an experienced teacher, but this lets me think that the number of teachers is not too high at the moment.

Ok, where for example? Green energy? And how can the state know that the area they invest in will one day be profitable? Most of the time, it's that kind of money that goes to waste.

If the private sector doesn't invest, it's because it doesn't consider the sector to be profitable, which means it doesn't think many people will value the good/service very much. It can get it wrong sometimes, but how risky is it to test that, in a time when France's finances are in peril?

There is a trade-off between empowering entrepreneurs and empowering the state.
Were the PC, Google, iPod / iPhone / iPad invented by civil servants, or ever subsidised by the state? No, they came from daring venture capitalists.

The investments made by the state do not need to become profitable. They just need to be useful for the community.
Paying teachers, researchers, policemen, firemen, etc. is not profitable. It may be the case that not many people value the services provided by education, research, security, and so on, but it simply means that people are too short-sighted to see why these things are useful.
I agree about this trade-off idea. But I believe that the 75% tax on income above 1M a year will have a negligible effect on innovation. I see two reasons for this:
1) A lot of new things are invented by passionate people who are not concerned by the tax because they are far from earning even half a million a year, and do not expect to earn more than one million a year thanks to the invention that keeps them busy.
The fact that the people at the head of Google or companies building PCs and i-Gadgets earn more than 1M euros a year now does not mean that the people that invented these things were expecting to earn more than 1M euros a year at the time they worked on their inventions.
2) The money that is needed to develop the promising new things does not come in majority from people earning more than 1M euros a year: it comes from smaller investors. At least that is how I imagine things are in reality, but I may be wrong.
I hope it is clearer now than in my other messages.

pseudoforeconomist, you get a point that the 75% tax bracket will not have much economic or social impact. The 1M euros threshold is so high maybe no more than 0.1% people may be concerned (that's a random number).
So it essentially has a symbolic value, which is not unlike Melanchon's 100% tax bracket. And that symbol is: it is not normal to earn more than 1M euros. If you are egalitarian, you may cherish that. But if you are liberal, you will find this unbearably intrusive of the state to decide how much you are allowed to make.
This is why it is so divisive: left wing people think the rich should be glad so much money is left to them, right wing people believe the state should be glad the rich is already paying so much taxes. At the end of the day, it boils down to the question, "who creates the wealth?", is it the individual who earns it, or the society that makes individual incomes possible?

I (Belgian, but living in France several months a year) think this is a fairly good article, making several truly pertinent remarks, however it is maybe a bit too though (that's because we're talking on France I guess ?). I would also like to make a few remarks on the content.
-Mr. Bayrou is not just a farmer in the Béarn, he also is a MP in the "Assemblée Nationale" in Paris, as well as former secretary of state. So he's not "just" a farmer.

-Mr. Sarkozy will be capable of pursuing reforms if elected. He did the same with the rise of the retirement age from 60 to 62. This was not announced during the 2007 presidential campaign either.

-And please, stop stressing the "halal meat"-discussion. This has not lasted long: a couple of days and only because Ms. Le Pen could not stop talking of it. Saying that this was a campaign-issue is, in my opinion, The Economist unworthy.

Quote: "So he's not "just" a farmer." No, he is not. He also happens to be a graduate of l'Ecole Normale Supérieure, who has avoided the pollies factory known as the Ecole Nationale d'Administration. Not your typical farmer, indeed.

You rightly point out one aspect of the article that I found disconcerting; namely, the few words dedicated to covering his campaign so far. While I find it significantly less inspiring, forthright and uncompromising than his 2007 run (I find his "produire en France" slogan quite ambiguously protectionist, or at least not clearly liberal enough for my liking), he is still the only prominent candidate who has committed to meaningful spending cuts. Which is a lot more than can be said about every single other pretender/contender out there.

Come on, Monsieur Bayrou, don't be shy and put your European integrationist, social-liberal, decentralising platform out there. Your putative voters (such as me) as well as more casual voters will be grateful. Ambiguous posturing should be well below your lofty aspirations.

More generally, while it is hard to translate the editorial line of a foreign publication into an explicit backing of a French presidential candidate, I would have thought Bayrou would be the Economist's logical choice. Then again I thought the Lib-Dems would have been TE's horse in 2010 so what do I know, really... :)

I am sure that what you say is true. However I would also have liked to see you discuss private debt in France. Living beyond our means is how we have fueled the consumerist economy. If then we cut back on public and private debt, will that not cause a problem? I have a question. When you say that America has about 41% of GDP in public debt, does this include the cost of its military forces? I think that figure should also be in your article.

Yes it does. Most of the world looks at the US military and assumes that this is why the US is in a bind financially. The military represents about 4% US GDP. The only country that spends an almost unsustainable amount is Israel. Unfortunately they need to spend about 11% of their GDP on the military. The main reason why the US has such a high debt is due to the lack of control of its medical expenses. Any politician who proposes any cost control is dubbed a socialist and a statist. The philistine attitude towards medicine is the catalyst to the debt America faces.The military is small beans.

I'm French (living in London) and am appalled by this pathetic campaign, though I wasn't expecting much in the first place.
This country has formidable assets, human and otherwise, which is why it has managed to muddle through for the past 30 years without being downgraded to GIIPS status, but I think the time of reckoning has come, and it's probably too late.
Don't overestimate political calculation, those people are really convinced that all their troubles with bond markets only stem from the hostility of evil Anglo-Saxon media and hedge funds (be ready to hear much more of that this year).
As usual, the French hide behind their fashionable egalitarianism a deep veneration for old money, and nobility old and new (the socialist 'elite' who despises bankers from their central Paris houses and chauffeured cars, all courtesy of the taxpayer of course). People who actually create wealth and employ others shall be bludgeoned into submission and say thanks afterwards.
This can't go on forever, and it won't.

I'm also French and living in London, and I agree with most of your views. But it is so easy to look down on France when we are sitting comfortably in our armchair in South Kensington.

This might be getting a bit too personal for an economic article, but I worked at a customer service of the Galeries Lafayette this summer and saw many French expatriates complaining about the paralysis of the economy and mentality. At first I agreed, but a more experienced (and former expat) colleague told me: "those guys hate France when they're earning millions. But sometimes, when catastrophe occurs and their fortune is lost, they come back 'tail between the legs' for some state generosity. And suddenly they're very glad to be back."

Still, that doesn't excuse the hatred of wealth-seeking, which indeed is completely silly...

Although I am not so sure that politicians actually believe their own words when the promise to wage war on bond markets (a pointless, counter-productive and obviously lost battle if there ever was one) or "spéculateurs" (a politically-loaded word that often means ordinary people who save for their retirement, mortgage deposits, children's education, etc.). Witness François Hollande's own stark contradictions between his speeches in London and in Le Bourget.

Same holds for the right.

I think all realistically electable candidates know very well that they are merely pandering to profoundly idiotic, misinformed, and selfish voters who are unable or unwilling to acknowledge the (in)consequences of their demands (ever more redistribution of ever-stagnating, if not frankly shrinking wealth).

In a democracy, we get the political class that we deserve. That is a serious indictment of French society today.

But what I find this article correctly highlighted was the obligation for politicians to go through some of their barmy populist propositions, against their common sense, for the sake of social content.

With ones such as Hollande's, that could be very dangerous. Recall Miterrand's crazi(er) reforms in the midst of Western deregulation, following his first election. With today's bond markets, we can't afford another trial-and-error process prolonged over 5 years.

I bet that France will run into a fully fledged debt crisis in the year to come, regardless of who is appointed. I'd say Sarkozy has 90% chance of reacting correctly, and Hollande 70% chance.

It may be possible that it's not obvious to a Frenchmen living in London that redistributing wealth to those at the levers of "the markets" is not wealth creation. If those actually created wealth and provided employment they wouldn't be under attack. What they actually is creaming of profits and destroying employment under the disguise of "efficiency".

It won't go on forever, but long enough for Hollande to carry off the goodies. It's the usual trick played by the socialists the world over:
1. Point the finger at evil bourgeois/capitalist/freemason etc.
2. Tax him to death or nationalise "for the people"
3. Hand the loot to your friends by "privatising"
And so the Chinese are buying up the Bordeaux vineyards, one at a time. They understand realities, if the locals do not.